US House fails to meet threshold to override Biden's veto of a resolution to overturn SAB 121

U.S. lawmakers voted 228-184 in a failed attempt to override President Joe Biden's veto of a legislative measure to overturn a controversial crypto accounting bulletin.

Staff Accounting Bulletin No. 121, also dubbed SAB 121, has drawn controversy over the past year over concerns in the crypto industry that it could prevent banks from safeguarding digital assets. It requires firms that custody crypto to record customer crypto holdings as liabilities on their balance sheets.

Reps. Mike Flood, R-Neb., and Wiley Nickel, D-N.C. introduced the resolution to overturn the bulletin in February. Later, the full House voted 228-182 in favor of the measure to overturn the bulletin in May, with mostly Republicans signing on as well as 21 Democrats. A week later, the Senate voted 60 to 38, with several Democrats, including Senate Majority Senate Majority Leader Chuck Schumer, D-N.Y., voting in favor of the measure.

That resolution was then vetoed by President Biden.

"The Administration strongly opposes passage of H.J. Res. 109, which would disrupt the Securities and Exchange Commission’s (SEC) work to protect investors in crypto-asset markets and to safeguard the broader financial system," the White House said in a statement of administration policy in May.

The SEC has said SAB 121 is "non-binding staff guidance" that strengthens disclosures to investors.

"Time and again, we have seen crypto firms fail and watched as their customers lined up at the bankruptcy court in hopes of getting what they thought was legally theirs," an SEC spokesperson said in a statement to The Block in April. "We’ve also seen the risks to investors in firms that safeguard these assets when they are hidden off balance sheet. These disclosures provide investors important line of sight into the level of risk taken by crypto custodians."

On Wednesday, House Financial Services Committee Ranking Democrat Maxine Waters of California was critical of overturning SAB 121 and said the crypto industry "didn't like the answer they got."

Waters also said that a "special interest group representing large custody banks" and the SEC are ironing out details to avoid a "sledgehammer effect."

"I understand that the SEC may be close to reaching an agreement on these modifications, which would ensure that well regulated entities like custody banks can offer crypto custody services consistent with SAB 121," Waters said. 

The SEC did not respond to a request for comment.

House Financial Services Committee Chair Patrick McHenry, R-N.C., said the House and Senate's move to pass the measure to rescind SAB 121 in May was the "first digital assets specific legislation" that had ever passed both chambers.

"It's never been clearer," McHenry said on Wednesday. "This administration would rather play politics and side with power hungry bureaucrats, over the American people and over new technology and the safe use of new technology."

McHenry, R-N.C., also alluded to votes for SAB 121 being tied to support of President Biden.

"I don't want to get into the conjecture of this stuff," McHenry said earlier on Wednesday. "It's not part of the decorum of the House here. The substance here is about digital assets."